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Regular readers will know I just don’t “get” mobile NFC. I’m talking here specifically about using a mobile phone for face-to-face payments at a physical POS via a contactless Near Field Communication (NFC) interface. I have no problem with mobile banking, mobile commerce and mobile person-to-person payments. In all these cases the mobile phone is just being used as an alternative to a PC and this will no doubt continue to become more common in the years ahead. But just as I can’t envisage ever paying in a shop with my PC I can’t see mobile NFC taking off any time soon – certainly not to the extent which the current industry hype would have us believe.

Here are the main problems I have with the mobile NFC proposition:

No acceptance infrastructure. Mobile NFC requires a critical mass of contactless terminals, but 5 years after its introduction, contactless payment volumes remain disappointingly low. I estimate the total number of bank card contactless payments in Europe last year to be about 100 million, which when compared to the total number of all card payments of about 40 billion represents a tiny 0.25% market share. Outside of a few niche outlets such as coffee shops and urban transit systems, merchants are simply not embracing contactless technology. And mobile NFC may not work even for urban transit systems; TfL have recently revealed that in tests, current mobile NFC technology is too slow to justify replacing Oyster cards on the London Underground.

No business model. Mobile NFC is supposed to be the key to replacing cash for low value payments. But making money out of low value payments is difficult enough for issuers and acquirers without having to split the pie between several new stakeholders including mobile network operators, handset suppliers, digital wallet providers and trusted service managers. The extra revenues will have to come from either consumers (why would they pay for something which is currently free?) or merchants. Mobile NFC enthusiasts seem to imply that added value in the form of targeted marketing, rewards and coupons will be enough to persuade merchants to pay a premium but frankly, I can’t see that happening.

Security concerns. The business model might not be so bad if mobile NFC was not restricted to low value payments, but that means PIN verification, which in turn introduces a host of new complications. It is worth pointing out that just as mobile phones were not designed for making payments, chip and PIN, the industry’s overarching security solution, was not designed for contactless payments. As I understand it, rather than Tap and Go, the mobile NFC process for higher value payments would be Tap, Enter PIN into handset, Tap Again, Go if the PIN is verified and the transaction authorised online. Quite apart from the complexity of this process, the idea of entering my PIN into a mobile phone fills me with horror. More generally, I think we have to assume that the mobile phone, just like the PC, is an inherently insecure device, vulnerable to hacking, phishing, and spyware. If mobile NFC ever did become a mainstream payment method, it would be a prime target for fraudsters.

Consumer acceptance. The point here is that consumers and merchants have had 60 years to get used to payments at the POS by credit or debit card, during which time the process has gradually evolved, through imprinting at zip-zap machines, swiping a magnetic stripe card and signing, to the current simple, standard, streamlined, fast chip and PIN transaction, which is already used widely for quite low value payments. Compared with this, mobile NFC payment could be highly complex. I might need to switch on my phone, check it’s powered up, unlock it, choose a payment application, tap, enter a PIN, tap again, wait for a receipt…. As always with card payments, the devil is in the details and I just don’t think the details have been fully thought through in this case.

So that in a nutshell is why I believe it is time to let mobile NFC rest in peace. Am I missing something?

Banking Automation Bulletin Article, July 2012, by Nick Collin

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